Answer:
a. Portugal has comparative advantage in producing Cheese.
b. Switzerland has comparative advantage in producing Jeans.
c. 8 pairs of jeans per pound of Cheese
9 pairs of jeans per pound of Cheese
d. The answer is D. 5 Jeans.
e. The answer is B. 1/10 Pound.
Explanation:
a. Portugal can produce 1 pound of Cheese for opportunity cost of 5 pairs of jeans whereas Switzerland can produce 1 pound of cheese for 10 pairs of Jeans, if Portugal imports jeans from Switzerland then it can get 10 jeans against 1 pound of cheese instead of 5 jeans which it can make at his own. So comparatively producing cheese is cheaper for Portugal.
b. referring to the explanation in requirement “a.” above Switzerland has benefit in producing jeans instead of producing Cheese.
c. Portugal can produce 1 pound of cheese for 5 pairs of jeans which suggests that during a trade receiving more than 5 pair of jeans for 1 pound of cheese will be beneficial for Portugal. Similarly Switzerland can produce 1 pound of cheese for 10 pairs of jeans, receiving 1 pound of cheese for less than 10 pairs of jeans can be beneficial for Switzerland.
• 3 pairs of jeans/ pound of cheese will be a loss for Portugal
• 15 pairs of jeans/pound of cheese will be a loss for Switzerland
• 8 pairs of jeans/ pound of cheese will provide gain to both countries
• 9 pairs of jeans/ pound of cheese will again provide gain to both countries
d. Portugal should trade for more than 5 pairs of jeans for each pound of cheese to gain from the trade because 5 pairs of jeans is the cost it can produce at his own in the country.
e. Switzerland should receive atleast more than 1/10 pound of cheese against 1 pair of jeans to gain from the trade. Because if it produces in his own country 1 pair of jeans equals 1/10 pounds of cheese
(1 Pounds of cheese / 10 Pairs of Jeans)
